The inevitable disintermediation of corporate financing in the euro zone

The starting point is the weakening of euro-zone banks: the low interest rates are reduc ing banks’ profitability and return on equity, the return on equity will be squeezed even more as capital requirements for euro-zone banks will increase further. Unprofitable banks are reluctant to take risk, banks whose return on equity is low cannot raise equity capital and therefore cannot expand ; euro-zone banks’ inability to grow will lead to: Either, as in Japan, a situation where companies self-finance and no longer need bank credit; but this requires very high corporate profitability if a reduction in investment is to be avoided; Or a situation where companies raise financing more in financial markets and less through bank credit (disintermediation). We should not forget that disintermediation will have negative consequences on the euro-zone economy and may be difficult to implement, as the following conditions must be met: Risky financial assets issued by companies must be held directly by euro-zone savers, whereas they have a strong preference for risk-free savings; Companies must be able to adjust very rapidly since financial markets can freeze up and companies may therefore have to do without financing , and, in particular, labour market flexibility must be significant. If corporate financing is actually disintermediated in the euro zone, the result will be strong growth in the corporate bond market, especially the High Yield market.